By Jonathan Stempel
Citigroup Inc. has set up an Internet bank that offers higher interest rates, as part of its plan to attract more online customers and reverse a decline in consumer banking profit.
Citibank Direct is offering a 4.5 percent yield on savings accounts, with no minimum balances required, and in some cases no monthly fees. Customers, however, must open linked checking accounts to get that rate.
The largest U.S. bank is hoping to better compete with ING Group NV's ING Direct and HSBC Holdings Plc's HSBC Direct in offering higher-yielding online accounts amid growing competition industrywide for deposits.
"They are late to the game, but with bank interest rates still relatively low, this offers customers a way to achieve decent returns and still have banking flexibility," said Jacob Jegher, a senior banking analyst at Celent Communications LLC.
The online deposit market is growing. ING Direct said it added its
15-millionth customer in January, and HSBC Direct said it was recently adding $75 million of deposits a week.HSBC Direct offers a 4.8 percent yield on some savings accounts, while ING Direct is offering 3.8 percent, according to their Web sites.
Capital One Financial Corp., the credit card issuer making a big banking push by acquiring North Fork Bancorp Inc. and Hibernia Corp., touts a 4.25 percent savings account yield. Emigrant Direct offers 4.5 percent.
In contrast, traditional savings accounts in markets such as New York and California often yield less than 1 percent, according to Bankrate.com. The average yield on interest-bearing checking accounts is 1.23 percent.
Many banks use online banking to add new customers, and increase business with existing customers who prefer to bank through more than one channel.
Existing Citibank checking customers may apply for Citibank Direct online. The maximum online account balance is $250,000.
New York-based Citigroup's online push comes as the bank plans to open as many as 200 branches worldwide and 100 in the United States this year. The latter number is three times as many as Citigroup opened from 2002 to 2005.
Last year, profit from Citigroup's consumer banking unit fell 9 percent to $10.9 billion, and in the United States fell 10 percent to $7.17 billion.
Citigroup is advertising Citibank Direct on Yahoo Inc. home Web page.
The product differs from Citi f/i, an online portal that the bank shut down in 2001 after two years, because customers may also visit branches.
Citigroup also plans this year to start a mobile phone banking service.
Other big banks have also struggled with Internet banking. Bank One Corp., now part of JPMorgan Chase & Co., shut down its WingspanBank.com after two years, also in 2001.
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